Archived - Tax Information Exchange Agreements

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Background Information on Canada's Policy

A tax information exchange agreement (TIEA) is a bilateral agreement pursuant to which two countries undertake to exchange tax information that is relevant
to the administration and enforcement of the domestic tax laws of each country.

In 2007, the Government of Canada announced a policy in support of its negotiation of TIEAs with jurisdictions with which it does not have or is not
considering the negotiation of a comprehensive tax treaty. The Government regards the ability to exchange tax information between countries as an important
condition to allow tax administrators to enforce the law.
Canada, as a member of the Organisation for Economic Co-operation and Development (OECD),
supports the OECD project that encourages member countries to enter into TIEAs with non-treaty jurisdictions.

Canada's policy toward the negotiation of TIEAs is two-fold:

Currently, dividends paid by foreign affiliates of Canadian companies out of active business income earned in a jurisdiction with which Canada has not
concluded a tax treaty are taxable in Canada when paid to the Canadian parent corporation; a foreign tax credit applies in respect of related foreign income
tax. Conversely, such dividends paid by foreign affiliates operating in a jurisdiction with which Canada has a tax treaty in force are generally exempted from tax in
Canada. Canada's policy in respect of TIEAs is to extend the same exemption in respect of dividends paid by foreign affiliates that operate in jurisdictions with which
Canada has a TIEA in force. The availability of such benefits could make these jurisdictions more attractive for Canadian investment.

To provide further incentive to enter into a TIEA with
Canada, the policy would require the Canadian parent company of a foreign affiliate to pay tax on an accrual basis on the active business income earned by that affiliate, where that income is earned in a jurisdiction with which Canada has not concluded a
TIEA within five years following the start of negotiations or the date on which Canada formally proposed negotiations, whichever occurs first. Accrual taxation
of such profits in Canada could reduce the attractiveness of non-TIEA and non-tax treaty jurisdictions as a location for Canadian investment.

For relevant excerpts of the 2007 budget proposals, see the subsection entitled "Improving Tax Information Exchange," which is found in Annex 5 under
"International Taxation" in the Business Income Tax Measures section at
www.budget.gc.ca/2007/plan/bpa5a-eng.html#business.